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State sales tax hike eyed

With income tax increase unlikely, Pennsylvania looks elsewhere

Friday, October 03, 2003

By Tom Barnes, Post-Gazette Harrisburg Bureau Chief

HARRISBURG -- With his plan to increase the personal income tax falling flat in the Legislature, Gov. Ed Rendell is now discussing an alternate revenue scheme with leaders of the state House -- increasing the state sales tax.

A sales tax increase was the subject of a meeting this week between Democrat Rendell and House Speaker John Perzel, a powerful Republican from Philadelphia.

"A number of [revenue raising] things were discussed, and that was one of them," Rendell spokeswoman Kate Philips said yesterday. "A sales tax increase is in the mix [of tax options]. The governor has said all along he's willing to talk about what method we should use to raise revenue. Everything's on the table."

"There is a series of revenue sources being discussed," added Stephen Miskin, a Perzel spokesman. "They've looked at a quarter-percent increase in the sales tax, a half percent increase or a full 1 percent."

The sales tax is currently 6 percent in most of Pennsylvania, 7 percent in Allegheny and Philadelphia counties. The extra 1 percent in Allegheny County was approved in 1994 and has been used to raise funds for "regional assets" such as the zoo, aviary, museums, county and city parks and libraries and sports facilities such as the new baseball park, the new football stadium and repairs to Mellon Arena.

The sales tax for the other 65 counties has been at 6 percent since 1968, according to the state Revenue Department.

Pennsylvania's sales tax rate is near the high end of state levies. State rates range from nothing to 7.25 percent, with most 4 or 5 percent.

House Minority Leader H. William DeWeese, D-Waynesburg, said House Democrats "are ready to work with our House Republican colleagues and the governor on the Perzel sales tax plan and to finally achieve a long-overdue state budget."

DeWeese said it was a major step forward for Republican leaders to acknowledge that additional funds are needed to balance the state budget.

But he added he has reservations about a sales tax increase because it "certainly and obviously impacts people at the lower end of the economic ladder more than it does affluent people."

Philips said Rendell also has qualms about a higher sales tax because "it burdens someone making $20,000 a year more than someone making $100,000 a year. An income tax increase is fairer."

But with virtually no legislative support for Rendell's plan to boost the 2.8 percent income tax to 3.1 percent or higher, lots of other revenue-raising ideas are still in play.

Ideas include extending the state sales tax to poured alcoholic drinks in bars and restaurants; imposing a new tax on cell phone usage; increasing the cigarette tax by 45 cents per pack; and closing so-called "loopholes" in corporate income taxes. Tripling a tax on beer and other malted beverages has also been discussed but hasn't gotten much support.

Rendell says the Legislature must decide how to raise up to $1 billion in additional revenue to balance the current budget.

Legislators have already agreed to provide nearly $200 million in increases to school districts for basic education funding, special ed and vo-tech funds. Rendell wants to increase that figure at least $370 million for new programs such as all-day kindergarten, pre-kindergarten programs, tutoring and teaching training.

In addition, he wants to restore up to $300 million in funding cut last March from social service programs such as drug and alcohol funding, libraries and mass transit. Also, the state may contribute up to $200 million to a special insurance fund to protect doctors from malpractice lawsuits.

DeWeese said he'd like to raise additional revenue to reverse "the draconian cuts made in March to social service programs."

House number-crunchers were still estimating how much a 0.5 percent increase in the sales tax would raise. Mike Manzo, a DeWeese aide, said it could be about $580 million. How the rest of $1 billion would be raised isn't known yet.

Both Philips and Miskin said they don't expect an agreement on what revenues will be raised for at least two weeks.

"The [budget] train is moving. It's gaining speed. But we're not at our station yet," Philips said. "We're cautiously optimistic about getting an agreement."

While Rendell's call for a higher income tax has fallen flat, initial reactions yesterday to a sales-tax increase were also frosty, including those from some Republican legislators.

"I haven't heard anything about a sales-tax increase and I don't support it," said Rep. Mike Turzai, R-Bradford Woods.

"I find that notion objectionable," said Rep. John Maher, R-Upper St. Clair. "It's a wrong-headed approach to governing, to try to increase revenues before any agreement is reached on what needs to be spent."

Rep. Jeff Habay, R-Shaler, said that any sales-tax increase "would have to be linked to a dramatic reduction in property taxes."

Rep. Tom Stevenson, R-Mt. Lebanon, said, "I don't know if [Perzel] is serious or if this is a smokescreen."

Any sales-tax increase would have to be approved by the Republican-controlled state Senate, and reaction from an aide to Senate Majority Leader David Brightbill. R-Lebanon, was negative.

Talk of a sales-tax increase "caught us by surprise," said Erik Arneson. "Any such increase faces a high hurdle in our caucus. The feedback we're getting from constituents is not to raise taxes for new spending."

Arneson said some additional revenue will be needed "to cover the budget hole" but disputed Rendell's claim that the deficit will be close to $1 billion. "We think the governor has low-balled his revenue estimates for this year by up to $700 million," he said.


Tom Barnes can be reached at tbarnes@post-gazette.com or 1-717-787-4254.

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